Danes Grab for Tax Revenues By Killing Cash

This might be a job for...bitcoin

Denmark strides boldly into a cashless future. Demand for the folding stuff is falling and everybody prefers electronic transactions anyway, we're told. So the government proposes to eliminate requirements that retail businesses accept cash—which may be a wise idea given that the Danish central bank will stop making any more of the stuff next year. It's all to relieve beleaguered Danes of the time and expense involved in security guards, surveillance systems, and making change. A world of electronic transactions will be so much easier for the country's residents, and their fearless political leaders have their backs.

Oh bullshit. This is all about the country's booming shadow economy and the government's efforts to boost its tax take.

Last October, Danmarks Nationalbank announced, "demand for new banknotes and coins has been falling for some years, and Danmarks Nationalbank does not expect the trend to reverse… Consequently, Danmarks Nationalbank has decided to initiate a process to discontinue internal printing of banknotes and minting of coins during 2016."

Now, the Danish government is proposing a set of related policies. According to Quartz:

Currently, Danish companies are required to accept cash payments, which "involve considerable administrative and financial burdens," the finance minister, Bjarne Corydon, said.

For instance, he said retailers spend a fair amount of resources on security guards and surveillance systems, as well as spending the time to make change for customers. Grocery stores, dentists, doctors, post offices, hospitals, and nursing homes are among the establishments that would be excluded from the proposed rule.

If the change is implemented, it could mean that retailers, restaurants and gas stations would be able to turn away customers who don't have access to electronic payments as early as Jan. 2016.

The idea is that transaction costs, as well as crime, go down when physical currency is eliminated.

Huh. 2016 again.

Anyway, it's worth knowing that Denmark has the highest tax rates in the world—nearly half of GDP is taxed. The tax burden is also rising faster there than most places, says the OECD. "the tax burden in Denmark increased by 1.4 percentage points from 47.2% to 48.6, the fourth largest increase amongst member countries in 2013. The corresponding figure for the OECD average was an increase of 0.4 percentage points from 33.7% to 34.1%."

Unshockingly, Danes have become awfully good at doing things off the books, so that they don't have to pay those taxes. A recent study of shadow economies gave Denmark extra attention and found that "52% of those questioned had had undeclared work done for them in the previous year." Almost half the workforce in construction and agriculture labors, at least sometimes, off the books—the overall number is 32 percent of the workforce. And the practice is widely accepted. 

This makes the Danish government feel sad and rejected. It spends all that time to hike tax rates, and people turn their noses up.

Vendors of electronic payment systems sniff an opportunity here. Would you believe that Visa Europe commissioned a 2013 study that concluded, "Increasing banking inclusion and the use of electronic payment systems brings more transparency to transactions and makes participating in the shadow economy more difficult."

And here we are in 2015, with the Danish government so helpfully pulling cash out of circulation to ease the worries and woes of its population with electronic transactions. So thoughtful.

But here's the thing: There really is opportunity here, and not just for Visa Europe. Faced with strict currency controls and ridiculous official exchange rates, Argentines have also turned to electronic payments—in bitcoin. The difference between those transactions and Visa's offerings, though, is that the bitcoin payments are deliberately structured to avoid government monitoring and control. Which might make the digital currency just a little more attractive to other people who have put so much time and effort into evading official scrutiny in their economic lives. The Danish government even takes an official hands-off approach to bitcoin, discouraging its use, but not attempting to impose regulations.

That's no guarantee that bitcoin will take off in Denmark. Maybe it's not the right solution and people will just conduct their off-the-books transactions in euros, dollars, or silver coins. But there's obviously a new battle being waged between government officials anxious to grab a piece of every transaction they can chase into the open, and people just as eager to keep out of the tax man's reach.

Given those tax rates, I'm betting on people's creativity to keep the shadow economy thriving.